Malaysian Pension Fund Sold Stocks on Poll Rally: Southeast Asia

By Michael Patterson and Weiyi Lim -
May 15, 2013

Malaysia’s biggest pension fund sold
about 331 million ringgit ($110 million) of shares in the
country’s benchmark index as Prime Minister Najib Razak’s
election victory sparked the largest rally since 2008.

EPF sold even as Najib’s win in the May 5 election eased
concern the first change in leadership since 1957 would disrupt
his plans to narrow the budget deficit and boost infrastructure
spending. The fund may have taken advantage of foreign purchases
to lock in higher prices on its holdings as the KLCI index rose
as much as 7.8 percent to a record, said ABN Amro Private Bank’s
Daphne Roth. Trading volumes on May 6 were 87 percent higher
than the 12-month average, data compiled by Bloomberg show.

“The local funds went in before the election so they are
just lowering their holdings and they just want to take
profit,” Roth, the Singapore-based head of Asia equity research
at ABN Amro Private Bank, which oversees about $207 billion,
said by phone yesterday. “They are hoping to come back in when
the prices are down.”

The volume of KLCI stocks rose during the post-election
rally and EPF’s participation increased accordingly, Nik Affendi Jaafar, the fund’s general manager for public relations, said by
phone yesterday.

Rising Valuations

Foreign investors bought a net 5.3 billion ringgit of
Malaysian shares during April after purchasing a net 4.8 billion
ringgit in March, according to exchange data. The bourse hasn’t
released figures for May.

The KLCI index ended with a 3.4 percent gain on May 6 and
has risen another 1.8 percent in the seven trading days since
then. It fell 0.3 percent to 1,783.03 at the close today and is
valued at 2.42 times net assets, within 1 percent of its record
high reached in January 2011, data compiled by Bloomberg show.

Goldman Outlook

There’s still room for Malaysian shares to gain, according
to Goldman Sachs Group Inc. The KLCI index may return another 14
percent in 12 months, Goldman strategists led by Hong Kong-based
Timothy Moe wrote in a May 13 report. They still have an
underweight rating on Malaysia versus other Southeast Asian
markets, favoring Thailand and Singapore.

Najib has embarked on a $444 billion development program to
build railways, power plants and roads to help the country
achieve developed-nation status by 2020. His Barisan Nasional
coalition, or National Front, won 133 of the 222 parliamentary
seats, according to the Election Commission, while the
opposition People’s Alliance led by Anwar Ibrahim had 89. It was
the narrowest margin of victory for the ruling coalition since
Malaysia won its independence from the British in 1957.

New CEO

“Election uncertainty has been reduced so there has been a
lot of foreign buying,” ABN Amro’s Roth said.

EPF, which is part of Malaysia’s Ministry of Finance, is
funded by mandatory contributions from private and non-pensionable public sector employees, according to its website.

Chief Executive Officer Shahril Ridza Ridzuan has led the
fund since April after replacing Azlan Zainol, who served in the
role for 12 years. Equities comprised about 39 percent of total
assets for the year, according to its website. It declared a
record dividend of 27.5 billion ringgit to members for 2012.

EPF was ranked sixth among the world’s largest state
pension funds by asset size in a survey by Towers Watson & Co.
released in August. About 15.7 percent of its assets at the end
of 2012 were in overseas investments, EPF said in a Feb. 17
statement.

Public Bank

The fund is an active buyer and seller of KLCI index
companies, data compiled by Bloomberg show. It changed holdings
in Public Bank, Malaysia’s fourth-biggest company by market
value, on 26 trading days so far this quarter. Its position in
lender CIMB Group Holdings Bhd. changed on 27 days. EPF, which
owns an 11 percent stake in CIMB, was a net buyer of the stock
on May 6.

Investors who own 5 percent or more of public companies in
Malaysia are required to report changes in their holdings within
seven days, according to the Securities Commission’s website.

EPF sold a net 2.63 million shares of Public Bank on May 6,
when the stock rallied as much as 3.4 percent. It reduced
holdings by about 4.5 million shares during the following two
days, data compiled by Bloomberg show.

The fund still owns about 472 million shares, or 13.5
percent of the outstanding stock. Public Bank rose 0.5 percent
to 16.80 ringgit yesterday, a record closing high.

UEM Land

The fund’s stake in UEM Land declined by 7.9 million shares,
the most since Bloomberg began tracking EPF transactions in the
company in 2009, as the stock jumped as much as 17 percent on
May 6. EPF still holds about 215 million shares, a 5 percent
stake. The Kuala Lumpur-based developer’s stock was unchanged
yesterday at 3.19 ringgit. It trades for 2.7 times net assets,
within 3 percent of the highest level since June 2011.

UEM’s investor relations group didn’t answer a call or
immediately respond to an e-mail.

Bumi Armada Bhd. (BAB), an offshore oilfield services provider,
climbed as much as 7.2 percent on May 6. EPF cut its stake by
2.8 million shares, the most since May 2012, according to data
compiled by Bloomberg. The fund still owns 190.8 million shares,
or 6.5 percent of the outstanding stock, the data show.

A call to Bumi Armada Chief Financial Officer Shaharul Rezza Bin Hassan’s office wasn’t answered and the company’s
investor relations group didn’t immediately reply to a request
for comment submitted to its website.

“Now that the foreigners are willing to take the market
higher, some of the local funds are cashing in,” Pankaj Kumar,
the director of investment at KSK Group Bhd., said by phone from
Kuala Lumpur. “Why not?”